What's Happening?
Canada's services sector remained in contraction in December 2025, with the Business Activity Index rising slightly to 46.5 from 44.3 in November, but still below the 50 mark indicating growth. The sector has
been contracting since December 2024, except for October. Trade uncertainties, particularly with the U.S., have weighed on employment and client spending. The United States-Mexico-Canada Agreement is up for review, adding to the uncertainty. Despite hopes for growth from upcoming events like the FIFA World Cup, sentiment remains low.
Why It's Important?
The continued contraction in Canada's services sector highlights the broader economic challenges posed by trade uncertainties. As services are a significant part of the economy, prolonged contraction could lead to job losses and reduced economic activity. The breakdown in trade talks with the U.S. and the upcoming review of the trade agreement add to the uncertainty, potentially affecting business confidence and investment. The sector's performance is crucial for economic stability and growth, impacting both domestic and international economic relations.
What's Next?
The review of the United States-Mexico-Canada Agreement will be a critical factor in determining the future of trade relations and economic stability. Policymakers may need to address these trade issues to support the services sector. Businesses might also look to diversify markets and reduce reliance on uncertain trade agreements. The sector's recovery will depend on both domestic policy changes and international trade developments.
